Brocade for Sale? Timing Not Optimal

The WSJ reported yesterday that storage company Brocade (BRCD) is "quietly" shopping itself around, and that two potential suitors could be Hewlett-Packard (HPQ) or Oracle (ORCL).

If indeed this is true, it'll be interesting to see what they sell for.

Timing is probably not optimal. Brocade is still digesting its December 2008 acquisition of Foundry Networks for $2.8billion. One would think they'd fully integrate this deal so that operations are running extremely smooth, leading to a higher buyout price for Brocade.

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Brocade could potentially do over $300million in Free Cash Flow. That would be about a 10% FCFY (Free Cash Flow Yield) on today's price. Taking a tough stance with an acquirer could lead to a buyout on a 7% FCFY, or about $10.28 per share.

I think shareholders would be best served by waiting another 12 months to shop the company. The earnings will be stronger, debt will be lower, and the purchase price would be richer.

Disclosure: no position

Comments

[Wisdom vs. ...:]

Rumors are: BRCD's 10GbE product is not going to be ready in time to be competitive, thus the fire sale. see more like 2x rev, 12.40

Oct 06 11:05 AM

[Nettligent:]

Broadcade is more valuable and much less headache without Foundry.

Oct 06 12:52 PM